Hemoglobin switching provides a model system to study the developmental and stage specific regulation of gene expression. Reactivation of fetal hemoglobin production remains an important strategy for treatment of sickle cell anemia and thalassemia. Hypoxia induces erythropoietin production and increases erythropoiesis, and stress erythropoiesis has been associated with induced fetal hemoglobin production. CD34+ hematopoietic progenitor cells isolated from peripheral blood were stimulated by erythropoietin for erythroid differentiation and cultured at various oxygen tensions leading to induction of HbF at low oxygen tension with minimal changes in erythroid differentiation as measured by benzidine staining. Globin gene production is regulated primarily at the transcription level. At low oxygen tension erythropoietin induction of GATA-1, a zinc-finger transcription factor required for survival and differentiation in erythroid progenitor cells, decreased by up to 50% with a typical delay in peak expression. Erythropoietin down regulation of GATA-2, critical for proliferation and survival of early erythroid progenitor cells, was not affected. SCL/Tal-1, a basic-helix-loop-helix transcription factor that positively regulates erythroid differentiation, and EKLF, a zinc-finger transcription factor necessary for induction of beta-globin, followed the pattern of delayed induction and reduced expression analogous to GATA-1. Concomitant with the modification in transcription factor expression were decreases in beta-globin gene expression and increases in gamma-globin gene expression resulting in over-all induction of fetal hemoglobin by up to 4-fold or more at 5% oxygen tension. The highest level of gamma-globin induction was associated with control cultures with the greatest amount of gamma-globin expression or fetal hemoglobin at normoxia. During erythroid differentiation, over expression of GATA-1 decreases GATA-2 expression and transactivates the erythropoietin receptor and globin gene expression, and at high levels, can increase cell proliferation. In contrast, over expression of GATA-2 induces the megakaryocytic phenotype. In search of down stream targets of SCL/Tal1, we cloned a 0.4 kb genomic DNA fragment (EEGS) that binds in vivo to SCL/Tal1 in K562 cells. EEGS contains two SCL/Tal1 binding E-boxes and one motif each for a GATA transcription factor, and a cell-type specific DNA-sequence organizer and gene regulator, SATB1. EEGS localizes to the pericentromeric region of chromosome 1 and is highly homologous to satellite?2 DNA. SCL/Tal1 increases methylation of histone H3 lysine 9 associated with EEGS chromatin, and EEGS represses transcription activation in reporter gene assays. These results implicate SCL/Tal1 in heterochromatin-like silencing via a cis-acting binding motif associated with the pericentromere.